Greek bond buyback offer tops expectations

Mon Dec 3, 2012 12:08pm EST
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By George Georgiopoulos and Karolina Tagaris

ATHENS (Reuters) - Greece said it would spend 10 billion euros to buy back bonds at a price range that topped market expectations, boosting hopes it can cut its ballooning debt and unlock long-delayed aid.

A successful buyback is central to the efforts of Greece's foreign lenders to put the near-bankrupt country's debt back on a sustainable footing and would clear the way for the funding Athens needs to avoid running out of cash.

Hopes the deal would attract enough investor interest to cut debt by the targeted 20 billion euros - about 11 percent of gross domestic product rose after the government offered a premium to market prices, sparking a rally in Greek bonds.

"It indicates they really want the swap to succeed," said Ricardo Barbieri, strategist at Mizuho, on the pricing.

"Some investors might be tempted to participate in the swap because of the ability to simplify their position, should they wish to maintain exposure to Greece, otherwise an opportunity to exit totally, completely their positions at a level that is better than Friday's close."

The buyback will be conducted through a modified Dutch auction in which investors declare what level they are willing to sell their bonds at before Athens sets a final price.

Such an auction creates competition among investors since anyone bidding at the upper end of the range risks being left out, and allows Athens to assess demand before setting a price.

The range set by Athens varied from a minimum of 30.2 to 38.1 percent and a maximum of 32.2 to 40.1 percent of the principal amount, depending on the bond maturities of the 20 series of outstanding bonds.   Continued...

Employees are seen working in their offices in the building housing Greece's finance and development ministries in Athens November 29, 2012. REUTERS/John Kolesidis